Kyoritsu Air Tech (TSE:5997) Will Be Hoping To Turn Its Returns On Capital Around

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think Kyoritsu Air Tech (TSE:5997) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Kyoritsu Air Tech:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.067 = JP¥669m ÷ (JP¥14b - JP¥4.5b) (Based on the trailing twelve months to March 2025).

So, Kyoritsu Air Tech has an ROCE of 6.7%. Even though it's in line with the industry average of 7.1%, it's still a low return by itself.

View our latest analysis for Kyoritsu Air Tech

Historical performance is a great place to start when researching a stock so above you can see the gauge for Kyoritsu Air Tech's ROCE against it's prior returns. If you're interested in investigating Kyoritsu Air Tech's past further, check out this free graph covering Kyoritsu Air Tech's past earnings, revenue and cash flow.

What Can We Tell From Kyoritsu Air Tech's ROCE Trend?

In terms of Kyoritsu Air Tech's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 6.7% from 12% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

What We Can Learn From Kyoritsu Air Tech's ROCE

To conclude, we've found that Kyoritsu Air Tech is reinvesting in the business, but returns have been falling. Since the stock has gained an impressive 47% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Kyoritsu Air Tech does have some risks, we noticed 3 warning signs (and 1 which is concerning) we think you should know about.

While Kyoritsu Air Tech may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.